Cook Inlet exploration incentives on table

Kristen Nelson

Petroleum News Editor-in-Chief

The Alaska Senate Resources Committee is considering ways to extend oil and gas exploration incentives to Cook Inlet. Incentives enacted for the North Slope do not work because the test for those incentives is distance from existing wells, and in Cook Inlet exploration may be in different horizons, rather than miles from existing fields.

Mark Myers, state geologist and the director of the Alaska Division of Oil and Gas and the Alaska Division of Geological and Geophysical Surveys, said committee Chair Tom Wagoner, R-Kenai, asked “what could be done in the incentive to make it efficient for Cook Inlet?”

While a large number of wells have been drilled in Cook Inlet, “there are still some legitimate exploration targets that have not been explored for,” Myers said. The previous incentive defined exploration by distance from other wells, but that’s just one test you can apply, he said.

A lot of geological targets in Cook Inlet “are in deeper horizons near existing infrastructure — but they’re no less risky geologically than a frontier or a wildcat in the sense of the geologic risk, because it could be a totally unexplored area. In particular in the deeper parts of the basin in Cook Inlet there is potential in the Jurassic section that’s below the traditional producing horizons,” Myers said.

There could also be “fault-separated trapping mechanisms” that have not been explored.

These types of exploration, he said, “are geologically as risky as a frontier exploration play.”

The proposed legislation uses a geological test.

A company would make its case to the Department of Natural Resources based on seismic and well data or other geologic or geophysical data, “and the commissioner would predetermine: is it distinctly separate? Is it a separate target?” Or it is just a development or delineation well for an existing discovery.

If the company makes its case that a target can be reasonably estimated to be geologically distinct, the commission of Natural Resources would then pre-certify that the well qualified for the credit, Myers said, giving a company certainty ahead of time.

Myers said exploration is expensive in Cook Inlet, particularly offshore, “you have no equipment to do it. You need to bring in very expensive jack-up rigs to do it, or you have to use highly deviated wells from existing platforms or infrastructure: both of them pretty expensive propositions.” And, he said, the size of remaining accumulations is believed to be small, as Cook Inlet is a mature basin and the more obvious plays have been drilled, “leaving the more risky deeper zones or potentially smaller targets.”

Myers said the department believes a Cook Inlet incentive would improve the odds of getting investment.

Sen. Kim Elton, D-Juneau, asked if incentives were needed with today’s high oil prices, and Myers said “the larger independents and the majors are basically just producing.” They are involved in a couple of exploration plays, he said, but the real explorers are smaller independent companies. Those companies, he said, “are typically less capitalized up front” so exploration incentives would help those companies in drilling relatively expensive wells or help to bring in a jack-up rig to drill offshore.

The bill was heard and held.